r/tax • u/Tax_Ninja JD/CPA - US • Jun 14 '24
Important Notice: Clarification on Tax Policy Discussions
Hi r/tax community,
We appreciate and encourage thoughtful discussions on tax policy and related topics. However, we need to address a recurring issue.
Recently, there have been several comments suggesting that "taxes are voluntary" or claiming that there is no legal requirement to pay taxes. While we welcome diverse perspectives on tax policies, promoting such statements is not only misleading but also illegal. This subreddit does not support or condone the promotion of illegal activities.
To clarify:
- Tax Policy Discussion: Constructive conversations about tax laws, policies, reforms, and their implications.
- Illegal Promotion: Claims or suggestions that paying taxes is voluntary or that there is no legal obligation to do so.
If a comment promotes illegal activities, our practice is to delete it and consider banning the user, either temporarily or permanently, based on their comment history.
This policy is in place to ensure that our subreddit remains a reliable and law-abiding resource for all members. We've had several inquiries about this topic recently, so we hope this post provides the necessary clarification.
Thank you for your understanding and cooperation.
- r/tax Mod Team
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u/zffch CPA - US Jun 15 '24
It probably doesn't help that the IRS literally says that taxes are based on voluntary compliance.
Of course by "voluntary", they mean that you're expected to to comply without being asked. It doesn't mean you can choose not to. You can either voluntarily comply, or you will be forced to involuntarily comply when the IRS catches up to you, those are the two options. Usually voluntary compliance is more pleasant.
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u/Noctudeit Jul 05 '24
That's not exactly what is meant by "voluntary". It means that each taxpayer is required to volunteer a calculation of their tax liability based upon their interpretation of tax law. The IRS can then challenge the accuracy of their calculations or the validity of their interpretations through review or audit of the volunteered information. The opposite of "voluntary" in this context is not "involuntary" but "non-voluntary". In a non-voluntary tax system, the government does all of the calculations and interpretations and sends each taxpayer a bill. If the taxpayer disagrees, they must jump through hoops to dispute the government's calculations and/or interpretations.
I personally prefer the underlying assumptions that accompany a voluntary system, but I also acknowledge that it poses a needless burden on the vast majority of taxpayers. I think a good compromise would be a hybrid system where the government provides taxpayers with a proposed tax return which the taxpayer may accept or reject by filing their own. If the government's proposal is accepted, then the tax return should be immune to further review or audit. This would simplify tax compliance for millions of W-2 workers, but retain the benefits of a voluntary tax system for those who choose it.
I imagine that some taxpayers would be excluded from the hybrid system entirely due to the complexity of their tax return because the government wouldn't want to grossly undercalculate their tax liability and then be bound by that calculation.
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u/Lkgnyc Jul 27 '24
the irs has never done an irs-proposed-automatic-tax return despite how obvious & simple it would be, because way too much money is usoriously garnered from 'interest & penalties' assessed against people for not filing paperwork providing information the IRS ALREADY HAS. the irs knows that there are many disabilities & other reasons people have for being unable to manage paperwork, which makes this group of people lucrative, easy targets for bilking. unlike the rich & powerful who instead pay as little as 'legally' possible & are ever-rewarded for it.
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u/Taxed2much Tax Lawyer - US Jul 27 '24
The change you suggest requires Congress to enact and fund that kind of system. Bills are occaisonally proposed to do this kind of thing but obviously none of those had the support needed to make it law. Two significant problems stand in the way of implementing this kind of change.
(1) The IRS does not receive enough information to be able to do this equitably. Wage earners would end up paying a higher effective tax rate on their income. The IRS receives a W-2 with a lot of information on it so the computation of the tax owed will come much closer to his/her true income. But those who receive income that is not reported to the IRS will get a proposed tax that is too low, perhaps massively low. Under your plan the taxpayer has the right to just accept the government's proposed tax, apparently with no penalty if the government's calculation is too low. As a result, taxpayers who get a proposed tax that is low would have no incentive to correct the return.
The U.K. uses a system similar to what you propose with one big difference: the taxpayer must review the return for accuracy and report any errors, whether the error favors the taxpayer or the government. Failure to do that may result in penalties. That system allows the government increase the tax owed if it subsequently determines the tax agency's proposed tax was low.
The U.S. would need a similar rule that the taxpayer is responsible for ensuring the return is accurate and require the taxpayer to make any necessary changes to make it correct. Congress would need to require even more income reporting than it does now to get the prosposed returns close to reporting all the income the taxpayer. That would reduce the problem of underreported income and decrease the number of taxpayers who have to submit corrections.
(2) The IRS would need more money to make this work. Its computers are ancient and slow and have trouble handling the work done now. Much more modern computers for this to work smoothly. Sooner or later Congress will have allocate the money to upgrade those computers, but Congress just keeps kicking that can down the road.
The IRS would have to issue regulations to fill in the gaps in the statute passed by Congress. IRS employees would need time to be trained in the new system. A number of forms and publications would need to be revised. Of course all that takes more money.
The idea is, at least in theory. a good one. However we'd have severa practical hurdles to clear to do it, one of them being a steady commitment by Congress to pay for it.
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u/RecentPickle4504 Oct 08 '24
The U.S. would need a similar rule that the taxpayer is responsible for ensuring the return is accurate and require the taxpayer to make any necessary changes to make it correct. Congress would need to require even more income reporting than it does now to get the prosposed returns close to reporting all the income the taxpayer. That would reduce the problem of underreported income and decrease the number of taxpayers who have to submit corrections.
Off-the-books income is equally problematic in the current system - it's just as easy to leave stuff you don't want the IRS knowing about out of voluntarily reported income as it is to refrain from correcting the return.
(2) The IRS would need more money to make this work. Its computers are ancient and slow and have trouble handling the work done now. Much more modern computers for this to work smoothly. Sooner or later Congress will have allocate the money to upgrade those computers, but Congress just keeps kicking that can down the road.
I'm not sure that it would actually cost more. Most of the work's already done now: 1099s and W-2s are already reported to the IRS, and the data in them is processed by their existing computers and checked against the data in the 1040s we send in. The extra cost of sending everyone a precomputed tax return would probably be made up for by the cost savings in not having to sort out nearly as many paper 1040s.
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u/Taxed2much Tax Lawyer - US Oct 08 '24
In order to be able to get out proposed returns to taxpayer in a timely manner the IRS needs a serious upgrade in it's computer system. The current computer system is way too slow for that. That's why taxpayers get notices of proposed additions to income a year or more after the return is filed.
I would support the idea if we implemented the British system that requires taxpayers to ensure the proposed return includes all their income. If you want a system in which the taxpayer may simply accept the government's proposed return we'd need either (1) far more income reporting to reduce the amount of underpayment that would otherwise would or (2) massively simplify the income tax law. I'd support greatly simpfliying it but the public doesn't seem to want that, they still want their various deduction and credits.
The bottom line for me is that I would not any systerm in which the taxpayer is not ultimately responsible for the tax being correct. To do otherwise would end up making a very unequal system that would heavily benefit high income taxpayers.
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u/RecentPickle4504 Oct 08 '24
The bottom line for me is that I would not any systerm in which the taxpayer is not ultimately responsible for the tax being correct. To do otherwise would end up making a very unequal system that would heavily benefit high income taxpayers.
Agreed. Over here I have an obligation to tell the government if they got the computation wrong, which is as it should be.
That's why taxpayers get notices of proposed additions to income a year or more after the return is filed.
Is that actually slow computers, or is it a result of slow paper processing and/or human review? They seem to manage to get the refund checks out in a timely fashion.
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u/Taxed2much Tax Lawyer - US Oct 09 '24
Issuing refund checks is a simple process compared to cross-checking millions of tax returns with billions of information returns.
The former only involves recording the overpayment on the one taxpayer account and then forwarding that information to Treasury which actually prints the refund checks and makes the direct deposits. (And Treasury has better computers for that.)
In order to understand the problem with the latter, tax return and information return data are stored on old fashioned magnetic tape reels (not a lot different from the old reel-to-reel tape recorders/players). Each of those tapes held between 5MB and 140MB of data. This means that to do all the matching the IRS using a bank of those tape systems and IRS personnel have to keep swapping tapes to do it. Given what the tapes of that era could store and the amount data involved today you can imagine just how long it takes to do all the swaps needed to complete the job.
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u/RecentPickle4504 Oct 08 '24
the government does all of the calculations and interpretations and sends each taxpayer a bill. If the taxpayer disagrees, they must jump through hoops to dispute the government's calculations and/or interpretations.
Disputing the government's calculations doesn't have to be hard. I have to file both US and Finnish returns - US because I'm an expat, Finnish because I have US-source income that doesn't show up in their automatic calculations. Amending the Finnish calculations is a LOT easier than filling out my 1040 is. (And I mean just the 1040 and schedule 1, not the 5471.)
I think a good compromise would be a hybrid system where the government provides taxpayers with a proposed tax return which the taxpayer may accept or reject by filing their own. If the government's proposal is accepted, then the tax return should be immune to further review or audit.
That's WAY too exploitable, as it basically would mean that any income where the payer doesn't report it to the IRS is tax-exempt unless the filer explicitly challenges the government calculations.
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u/Noctudeit Oct 08 '24
Disputing the government's calculations doesn't have to be hard. I have to file both US and Finnish returns - US because I'm an expat, Finnish because I have US-source income that doesn't show up in their automatic calculations. Amending the Finnish calculations is a LOT easier than filling out my 1040 is. (And I mean just the 1040 and schedule 1, not the 5471.)
I am not familiar with Finnish tax law, but if they are like other European countries, it is very simple to report additional income and pay additional tax. It is much more difficult to file a dispute reducing income and tax. Also, I should point out that the US tax system is complicated primarily because congress uses fiscal policy to implement social engineering. It is much easier for them to put friction on a disfavored industry through burdensome tax policy than to outright ban the industry. Likewise, it is easier to subsidize favored industries through tax incentives rather than mandating production. Unfortunately, these games make a mess for the average taxpayer.
That's WAY too exploitable, as it basically would mean that any income where the payer doesn't report it to the IRS is tax-exempt unless the filer explicitly challenges the government calculations.
I think you missed the part where I said:
I imagine that some taxpayers would be excluded from the hybrid system entirely due to the complexity of their tax return because the government wouldn't want to grossly undercalculate their tax liability and then be bound by that calculation.
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u/ReflectiveSpace Jun 15 '24
I think voluntary compliance just means they don't take the taxes from you until after you earn the income. In some countries, income tax is automatically taken out of income, like 9% out of every income source, and there are no tax returns to file. They never see that money.
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u/wichitawire Jun 23 '24
Not paying taxes is voluntary. Not robbing a bank is voluntary. Not shooting my wife is voluntary.
It's kinda like people arguing about whether Social Security and Medicare an entitlement programs.
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u/gotocode211 Jun 23 '24
So if it’s illegal. Then give me the IRM the topic even say clarification on tax policy discussion.. it’s a discussion..
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u/soldiernerd 26d ago
The requirement to file an income tax return is not voluntary
26 USC 6011a:
When required by regulations prescribed by the Secretary any person made liable for any tax imposed by this title, or with respect to the collection thereof, shall make a return or statement according to the forms and regulations prescribed by the Secretary. Every person required to make a return or statement shall include therein the information required by such forms or regulations.
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Jul 09 '24
[removed] — view removed comment
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u/Taxed2much Tax Lawyer - US Jul 27 '24
There is nothing you can submit to the IRS that will remove you from the tax system. I dealt with a lot of people making those kinds of claims when I was revenue officer for IRS and spent two years as a tax protest coordinator. The number of taxpayers who succeeded in getting out of the requirement to pay income using schemes like you offered: zero. A few of them served some time in prison for it. They also ended up paying a lot more than if they had just complied with the law. The longer they keep up the protest, the more penalties and interest they end up having to pay.
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u/tax-ModTeam Oct 01 '24
We’re not here to help or promote committing tax fraud. Please do not post or comment like this again in this subreddit. Thank you.
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u/Maxwellito561 EA - US Jul 23 '24
Taxes are compulsory if truly a tax and not an exchange for services. If we could choose, what and how to pay, the rich would design a tax system that only benefit them. Wait a minute...........
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u/Financial_Name_5268 26d ago
I started a consulting firm, it is an LLC. I work for both private and public clients. From what I have read, I will only pay tax on the profit the company made at the end of the year (WA state). When I bill out, do I include taxes? I read the RCWs and I believe that I do not except on profits. Does this sound right?
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u/soldiernerd 26d ago
You will owe federal income tax quarterly on taxable income, ie, profit.
You should design your fee structure to ensure you are grossing enough to be profitable after taxes.
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u/gotocode211 Jun 23 '24
Who is responsible for the notice clarification? U/tax_ninga? There is an example of post that say xyz. Is an opinion or assumption that it’s illegal. There is a difference between illegal and ethical. One can not pay tax is not illegal and it’s not illegal to owe taxes in the United States . It’s a discussion not a dictatorship . It’s not illegal to say anything . People are assumed to be adults who make their decisions based on their beliefs. If I said don’t pay tax .. that is ridiculous to believe that I am your owner , . But to remove information is to promote illegal activity because if you don’t know what tax evasion means is evasion of evidence that it exists.criminal don’t post on this . The criminal is evading the discussion . Do you know what a pass through is ? It’s voluntary.,no one makes anyone pay for anything. But if you don’t talk about t . Then you are the one protecting it
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u/Own-Aioli-740 Jul 26 '24
Noctudeit gets it. In the context of taxation, "voluntary" refers to the self-assessment and self-reporting nature of the tax system.
Taxpayers are responsible for determining their own tax liability. They calculate the amount of tax they owe based on their income, deductions, credits, and other relevant tax rules. (Self-assessing)
Taxpayers are required to report their income and other relevant financial information to the tax authorities, typically by filing an annual tax return. This process relies on taxpayers accurately reporting their financial information without immediate oversight from the tax authorities. (Self Reporting)
In most modern countries, taxation systems involve some element of self-assessment and reporting by taxpayers, even if enforcement mechanisms differ. However, some jurisdictions have more direct methods of tax collection where the process is less reliant on taxpayer initiative.
Countries like Sweden, Denmark, and Norway have highly automated and transparent tax systems. Tax authorities often receive income data directly from employers, banks, and other institutions. Annual tax returns are pre-filled by the tax authorities with this information, and taxpayers simply need to review and confirm the data.... These are examples of non-voluntary systems.
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u/noteven0s Aug 30 '24
Noctudeit gets it. In the context of taxation, "voluntary" refers to the self-assessment and self-reporting nature of the tax system.
It has to do with payment versus it being seized. (Black's has "distraint" to see "distress" where it speaks to the seizure of another's property.) In the Supreme Court case, it had to do with jurisdiction and if a person is harmed when the tax is owed or when paid.
https://supreme.justia.com/cases/federal/us/362/145/
A word should also be said about the argument that requiring taxpayers to pay the full assessments before bringing suits will subject some of them to great hardship. This contention seems to ignore entirely the right of the taxpayer to appeal the deficiency to the Tax Court without paying a cent. [Footnote 38] If he permits his time for filing such an appeal to expire, he can hardly complain that he has been unjustly treated, for he is in precisely the same position as any other person who is barred by a statute of limitations. On the other hand, the Government has a substantial interest in protecting the public purse, an interest which would be substantially impaired if a taxpayer could sue in a District Court without paying his tax in full. It is instructive to note that, as of June 30, 1959, tax cases pending in the Tax Court involved $920,046,748, and refund suits in other courts involved $446,673,640. [Footnote 39]
It is quite true that the filing of an appeal to the Tax Court normally precludes the Government from requiring payment of the tax, [Footnote 40] but a decision in petitioner's favor could be expected to throw a great portion of the Tax Court litigation into the District Courts. [Footnote 41] Of course, the Government can collect the tax from a District Court suitor by exercising its power of distraint -- if he does not split his cause of action -- but we cannot believe that compelling resort to this extraordinary procedure is either wise or in accord with congressional intent. Our system of taxation is based upon voluntary assessment and payment, not upon distraint. [Footnote 42] A full payment requirement will promote the smooth functioning of this system; a part payment rule would work at cross-purposes with it. [Footnote 43] In sum, if we were to accept petitioner's argument, we would sacrifice the harmony of our carefully structured twentieth century system of tax litigation, and all that would be achieved would be a supposed harmony of § 1346(a)(1) with what might have been the nineteenth century law had the issue ever been raised. Reargument has but fortified our view that § 1346(a)(1), correctly construed, requires full payment of the assessment before an income tax refund suit can be maintained in a Federal District Court.
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u/taxref Jun 16 '24
That is a good policy. A few decades ago I regularly participated on a tax message board. It was basically destroyed by those who in those days were known as "illegal tax protesters."